The United Arab Emirates is introducing corporate income tax from June 2023

Announced in February 2016, the UAE Ministry of Finance announced on January 31, 2022 that a tax on corporate profits (Corporate Tax) will be introduced as of June 1, 2023.

Who is affected by this new tax?

All Mainland companies are subject to this new tax. Free-zone companies are not affected if they do not conduct business in the UAE. This point will be clarified in the coming months, but it should be noted that a Free-zone company with clients in the UAE will be subject to corporate tax. The logic is the same as for a company's liability for VAT. Individuals holding a license or permit (such as freelancers) whose clients are located in the UAE are also affected. The FTA has set up an FAQ that already provides some details: https://tax.gov.ae/en/faqs

What will the corporate tax rate be in the UAE?

Two corporate tax rates will be introduced: - 0% on profits up to AED 375 000 per year; - 9% on profits exceeding AED 375 000 per year. Dividends, capital gains, royalties, and interest will remain non-taxable. Loss carryforwards (loss carryforward) and loss carrybacks (loss carryback) will be possible. Within a group, the losses of one entity may be offset against the profits of another entity. Tax credits calculated on taxes paid abroad by UAE companies will be available.

What about taxes for individuals?

The new tax only applies to companies. Therefore, no personal income tax is planned for individuals residing in the UAE. Salaries, dividends, rental income, etc. received by an individual will therefore remain untaxed.

What are the consequences for your company?

For several years, we have assisted all our clients in complying with the legal obligations applicable to their companies in the UAE. This new tax will increase the importance of accounting, the annual audit of the accounts, and holding an annual general meeting. If your company is not up to date with these matters, we invite you to contact us so that we can check with you whether all the legal obligations (there are now 8 of them, including the audit, VAT, ESR notification, etc.) applicable to your business are being properly fulfilled.